Ownership, Activism and Engagement: Institutional Investors as Active Owners

Abstract

Manuscript Type: Conceptual Research Question/Issue: We research two questions: First, why do some institutional investors operate at a distance from organizations seemingly acting only to "exit" and "trade" shares, while others actively engage through various means of "voice"? Second, what processes and behaviour are associated with active ownership? Research Findings/Insights: We develop the concept of active ownership by drawing on contrasting theories and images of ownership, identifying antecedents of active ownership and distinguishing between alternative processes of active ownership. Theoretical/Academic Implications: Alternative pathways to active ownership contrast the distant, sometimes adversarial nature of shareholder activism with an engaged, collaborative relationship between investors and corporations. Few studies examine active ownership as a process of engagement and mutual exchange between parties taking a generally longer-term perspective toward investment in the firm and its affairs. After modeling active ownership, we develop a research agenda of substantive issues ranging from market and institutional conditions, through investment organization and practice, to board and investor relations. Practitioner/Policy Implications: Opening up the multidimensionality of engagement and relations between investors and corporations is crucial to promoting good corporate governance. Policymakers and practitioners require such knowledge when anticipating and developing adjustments to institutions of corporate governance.

Vocabularies of Motive and Temporal Perspectives: Examples of Pension Fund Engagement and Disengagement

“…However, the empirical evidence investigating this relationship is decidedly mixed (Bainbridge, 2003;Dalton et al, 2007;Tilba, 2011). Most recent academic reviews of the current state of shareholder activism literature suggest that the research on shareholder engagement (both financial and social) offers conflicting perspectives on this topic (Goranova and Ryan, 2014;McNulty and Nordberg, 2016).…”

Edging Toward ‘Reasonably’ Good Corporate Governance

“…The renamed UK Corporate Governance Code (FRC 2010a), drafted in the wake of the crisis, sought to develop a discourse about the need for strong relationships, within linked the boardroom and between boards and investors (Nordberg and McNulty 2013). The concurrent initiative of UK Stewardship Code (FRC 2010b) urged investors to become active owners, engaging in dialogue to develop mutual understanding (McNulty and Nordberg 2016). This approach chimed with literature describing governance based on relationships rather than mechanisms (Fairbrass and Zueva-Owens 2012;Goergen et al 2010), and echoing themes in family-led governance (Ko and Liu 2016) and in other privately held firms (Uhlaner et al 2007).…”

“…This view takes the concept of accountability far from the idea that corporate disclosure to enable shareholder activism in the narrow form of episodic, change-seeking behavior (for a discussion, see McNulty and Nordberg 2016), and ultimately the market for corporate control. It also leads us to consider what cognitive assumptions underpin the four strands of thought in corporate governance practice and literature.…”

Sustainable Returns: The Effect of Regional Industrial Development Policy on Institutional Investors’ Behavior in China

“…In other words, this crisis increased the importance of corporate governance. Moreover, the majority of large shareholders believe that professional institutional investors can enhance the monitoring of corporate governance [1,2], indicating that they can play important stewardship roles in corporate governance [3]. Hernandez [4] defined stewardship as the "extent to which an individual willingly subjugates their personal interests to act in the protection of others' long-term welfare".…”